3 economic lessons from Ariel Sharon

Opinion: Off the battlefield, Israeli leader often went against the grain

By

AmotzAsa-El

Columnist

Reuters

Former Israeli Prime Minister Ariel Sharon is known more for his military and political achievements, but he left a strong legacy in economics as well.

JERUSALEM (MarketWatch) — Ariel Sharon, a warrior whom military historians already mention in one breath with Hannibal, Caesar and Zhukov, is less famous for his economic imprint. Even so, the former Israeli prime minister does leave an economic legacy for all politicians that boils down to three dictums: consolidate, delegate, and surprise.

Consolidation came in 1984. A political pariah following the First Lebanon War, Sharon detected opportunity when triple-digit inflation overshadowed an electoral tie between the two major parties, Likud and Labor.

Former Israeli Prime Minister Ariel Sharon Dies at 85

(2:07)

Former Israeli Prime Minister Ariel Sharon, whose career spanned the history of Israel from its establishment in 1948, passed away. Sharon suffered a series of strokes in 2006 that left him in a coma. Photo: Getty Images

Sharon then engineered what future economies in crisis — most recently Greece’s — would fail to deliver: a political truce. He persuaded the major parties to temporarily set aside their differences and jointly cure the economy.

It was the political equivalent of blitzkrieg, namely a consolidation of forces opposite the enemy’s weak point, only here the enemy was an overheated economy, and its weakness was the otherwise dispirited public’s thirst for sacrificial leadership. Leaders who share power in order to overcome national crisis win respect, and also earn the clout with which to ask others to sacrifice.

The unity government was led by Labor’s Shimon Peres while the finance minister was a cosmetics millionaire who 36 years earlier had saved a severely wounded Sharon’s life when he carried him under enemy fire to the medics who stopped the future general’s hemorrhaging.

The results of this millionaire’s collaboration with Labor’s socialists were remarkable.

Backed by a broad consensus, the allied politicians took drastic measures with political impunity. They slashed defense spending by 20%, froze public-sector hiring, halted salary indexations, banned by temporary decree retail price hikes, and robbed the Treasury of its power to set interest rates, placing it instead in the hands of the apolitical Bank of Israel.

Suddenly unable to print money, the politicians soon saw triple-digit inflation plummet and a reissued shekel
USDILS, -0.2855%
, from which the alliance deleted three zeroes, gradually emerge as one of the world’s strongest currencies.

Sharon was no economist, and his role in conceiving and executing this plan was relatively marginal, as the minister of industry and trade whose inspectors oversaw the retailers’ observance of the price freeze. Indeed, Sharon’s imprint was deeper the following decade, as the housing minister who drove the construction industry to multiply its output and thus house a million unexpected immigrants from the former East Bloc.

However, by consolidating in 1984 a fragmented political scene he paved the way for Israel’s transition from socialism to capitalism.

Harnessing a rival

As prime minister, Sharon was challenged by Israel’s worst-ever recession, the result of last decade’s Nasdaq meltdown, 9/11 attacks, and Palestinian terror. Sharon’s response was to assign his rival for Likud’s leadership, Binyamin Netanyahu, with ending the recession, by appointing him minister of finance and allowing him to launch a Thatcherist reform.

“He knows what he is doing,” Sharon told me in a meeting those days, reflecting an unwritten deal between the two whereby Netanyahu enjoyed full independence as treasurer in turn for keeping publicly quiet while Sharon managed Israel’s foreign and military affairs. Both men fulfilled their parts in this deal, which resulted in a set of reforms that complemented Israel’s transition to capitalism.

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